The United States government entity has a certain amount of money available to acquire loans. By exceeding said limit, you would run the risk of running out of cash liquidity, a consequence that you would face if you did not make a change in the limit of the funds allocated for debts.
Janet Yellen, Secretary of the Treasury, launched a red alert on the United States last Thursday for being about to exceed the line of its debt , with an exposed amount of 31.4 trillion dollars. Faced with such a problem, Washington formulates a defense with the objective of taking to the top or dissipating what the state owes.
The sums of money that the United States receives from the sale of Treasury bonds to important investors are exorbitant, and in this way it pays for its current financial commitments. Among these commitments is the payment of the military, social assistance and interest costs generated by public debt.
If the country does exceed its debt limit, the Treasury has the power to take action by pausing or undoing the nation’s investments in order to stabilize the debt and maintain a temporary balance in the agreed fund.
It is expected that it will only be for a while that the debt ceiling will be able to stabilize, since the United States at some point in the not too distant future will need credit again to settle its financial obligations, otherwise it would not be possible to meet them or face its same debt.
Congress is the one who must be in charge of eliminating or raising the debt limitation, a decision that must be put to a vote and win the total votes of the House of Representatives and the Senate, seeking to obtain an inclination that favors such a decision.
In the past, raising the debt limit has not been approved, since the limitation is intended to reduce the available budget.
2023 will be the most difficult year for the United States due to its high debt. The Republicans are in the lead and have control of the Lower House, currently they have launched measures to put obstacles to the request for the increase in the debt limit and thus reinforce the possibility of demanding that if the increase in the limit is approved, it will also be cut public spending. In addition, the Republican senators emphasize that the increase in the debt limit is related to a structural modification of spending.
Joe Biden, current president of the United States, announced that he is strongly opposed to the idea of linking budget cuts to raising the debt ceiling, which would further lengthen the solution to the problem.
Perhaps to understand the magnitude of the problem you need to know what the debt limit is about, how the United States contracted it and why it does not choose to eliminate it and thus free the country from facing a possible economic crisis.
What is the debt limit about?
The debt limit is nothing more than the fund available to the government to pay its monetary commitments, a fund that has a certain amount which it cannot exceed. The United States currently faces budget problems because its outflow of money is greater than the income it receives from taxes and extra income, so it has to request exorbitant amounts to settle its debts and pay social assistance, military salaries and interest on public debt.
Analyzing the rise in debt leads lawmakers to insist on the need to cut administrative expenses, but there is no existing fund to support the suspension of the debt ceiling, which would force the United States to face its current financial commitments .
When will be the deadline for the debt to be exceeded?
The exact day that the nation could exceed the debt limit is unknown, but if it happens, the Treasury Department will implement a series of measures to continue resolving the government’s monetary commitments. These measures will be useful to put a stop to certain state investments and facilitate the payment of its commitments.
The Treasury Secretary alerted Congress that the available budget could run out in June. The research center, The Bipartisan Policy Center, in charge of monitoring the time of the debt ceiling, presumes that by mid-year the Treasury could run out of liquid funds, although the exact date is unknown.
What is the total amount of the United States debt?
In 2022, it exceeded 31 trillion dollars for the first time and for this year the debt limit rose to 31.4 trillion dollars , which is quite close to the limit, which is 31.381 trillion dollars.
What would happen if the debt limit is not suspended or withdrawn?
When the measures taken by the government hit rock bottom and cash runs out, there will be no other chance to formulate new debt tools. Leaving the government without the necessary amount of cash to keep up with the upcoming payments.
If the aforementioned materializes, it is not known precisely what this could trigger, since the payment of the debt would be defaulted if the required amounts are not paid to the beneficiaries of the bonds. In case of defaulting on debt payments, the government could face an economic crisis and part of the world as well.
Can the government face the coming situation?
Washington does not have exact instructions on what it would do if the country defaulted on its debts, although if there are variants, one of them could be to pay bondholders earlier, but this measure has not been implemented before. and it would be necessary to decide from the political point of view who would receive their payment and who would not.
The US debt default could trigger the markets and the Federal Reserve would act on it by obtaining some Treasury bonds by buying them, somewhat alleviating the fear of Treasury managers and companies.
Why does the United States set a cap on the debt limit?
Congress is the one who must approve all loans requested by the government, as the Constitution dictates. At the beginning of the 20th century, the debt limit was created so that the Treasury did not have the need to request a permit every time it needed to issue bonds to pay outstanding accounts.
Would there be any benefit to undoing the debt limit?
Voting to raise the debt ceiling is a process that seems to cause enjoyment to certain legislators from both sides, that is, Democrats and Republicans. The debate about what would happen if the United States were to default on its financial duties is also another of the moments that legislators seem to enjoy, as if they were more attentive to the long-awaited moment than to the obligation not to reach the debt limit.
Yellen, the Treasury secretary, made it known that she strongly supported a bill to eliminate the debt ceiling, a possibility that Biden has so far rejected.